Market gives thumbs down to Cairn India buyback price; shares down 2%

NEW DELHI: Cairn India Ltd slipped as much as 2.1 per cent in morning trade on Wednesday, a day after its board approved buying 17.09 crore shares or 8.9 per cent of the total shareholding, from open market at no more than Rs 335 apiece.

Share buyback is the process where a company repurchases outstanding shares in order to reduce the number of shares on the market which in turn boosts EPS or earnings per share of the company.

The buyback would help promoter Anil Agarwal-led Vedanta Group gain greater control over oil producer without putting any money. The buyback price of Rs 335 per share represents a little 3 per cent premium to Tuesday's closing price of Rs 324.

At 09:30 a.m.; Cairn India recouped some of the morning losses and was trading 0.7 per cent lower at Rs 321.40. It has hit a low of Rs 316.90 and a high of Rs 321.75 in trade today.

The company has a cash balance of more than $3 billion and generates operating cashflows of more than $2 billion annually. It pays an annual dividend of about $400 million.

"The maximum buyback price represents over 4 per cent premium compared to the average of the weekly high and low of the closing share price of the company during the last two weeks," Cairn India said in a statement.

The buyback will start in January after shareholders nod and other sanctions and approvals are in place.

Cairn, the largest private oil producer in the country, will offer to buy back shares, including 10.27 per cent held by its former promoter Cairn Energy Plc of UK, and extinguish them.

"With high operating cash flows, limited capex requirements, we believe buyback is positive for equity shareholders," Angel Broking said in a report. The brokerage firm maintains their 'Buy' rating on the stock with a target price of Rs 380.

"While share buyback is considered an efficient means of returning capital to shareholders, it also indicates that the company is not looking at doing major acquisitions or has significant capex plans that may need its current cash pile," PTI reported.

"The Board of Directors of the company in its meeting held on November 26, 2013 has approved a proposal for the buyback of equity shares of the company from its existing shareholders, other than the company's promoters, promoter group, persons in control and persons acting in concert," the statement said.

The buyback would be done from the open market through the Stock Exchanges, at a price not exceeding Rs 335 per share, up to an aggregate amount not exceeding Rs 5,725 crore.